Firm-level perception of economic policy uncertainty and digital transformation

Economic policy uncertainty affects firms’ expected costs and benefits, leading to perceptual biases. In the era marked by the rapid expansion of the digital economy, does firms’ perception of uncertainty impact the process of digital transformation? Using data from China’s A-share listed companies from 2007 to 2021, this paper explores the impact, underlying mechanisms, and potential improvement strategies of firm-level uncertainty perception on digital transformation. The findings reveal that firms’ uncertainty perception significantly inhibits digital transformation, with a more pronounced effect in firms lacking executives with a digital background and in policy-sensitive industries. Three potential mechanisms have been identified: exacerbating managerial myopia, exerting the crowding-out effect of financial assets, and undermining digital technology innovation. Moreover, supportive data policies and digital economy regulations can substantially mitigate these negative effects. This paper provides valuable policy insights for stabilizing expectations and fostering firms’ digital transformation.